The Court of Appeal departed from “40 years’ of received wisdom” to determine that the Limitation Act 1908 applies to unfair prejudice petitions.

What are unfair prejudice petitions?

s.994 Companies Act 2006 provides statutory relief is sought by a member of a company to present a petition for unfair prejudice. Unfair prejudice, as defined by s.994 (1)
“ (a) the company affairs being or have been conducted in a manner that is unfairly prejudicial to the interest of members generally or of some part of its members or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

What is fairness?

Lord Hoffman, in O'Neill v Phillips [1999] 1 WLR 1092, explains that the concept of fairness is considered within a commercial context, including the terms of a company’s articles of association and often collateral agreements. Company law has roots in equity, and thus, the equitable meaning of good faith applies to such petitions.

To remedy unfairness, the Court’s powers are defined in s. 996 CA 2006
"(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
(2) Without prejudice to the generality of subsection (1), the court's order may–
(a) regulate the conduct of the company's affairs in the future;
(b) require the company–
(i) to refrain from doing or continuing an act complained of, or
(ii) to do an act that the petitioner has complained it has omitted to do;
(c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;
(d) require the company not to make any, or any specified, alterations in its articles without the leave of the court;
(e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly."

Thus, the Court has wide discretion to grant a remedy that addresses the unfair prejudice complained of. As s.996(1) is without prejudice to the list of potential remedies set out within s. 996(2) CA 2006, Richard LJ found that an award for compensation is a form of relief that the Court is empowered to grant only if the Court is satisfied the petition is well founded.

Clearly, ss.994 and 996 CA 2006 do not define a limitation period, and some 40 years’ worth of received wisdom provided that the limitation Act does not apply to unfair prejudice petitions. The staleness of claims within petitions has been considered on a case-by-case basis with the underlying public policy consideration of not allowing the continuing of stale claims. There are clear public policy reasons not to allow a minority shareholder who knows of unfair practices to significantly delay a petition to claim an excessive remedy. The Court are live to these policies and would not need the constraints of the Limitation Act 1980 to bolster their unfettered discretion under these provisions of the Companies Act 2006.

THG v Zedra Trust [2024] EWCA Civ 158

Essential Facts:
The petition, presented on 7 January 2019, contained a series of complaints against serving and previously serving directors. All complaints were either struck out or dismissed. Subsequently, an application to amend the petition was made on 22 June 2022, which was granted. The amended petition complained that the petitioners were wrongfully excluded from bonus share issues on 11 July 2016. It was alleged that the unfair allotment of shares between different shareholders was an attempt to dilute the petitioner’s shareholding.
The amendment was objected to on the grounds of the petition being time-barred. This principle issue of whether or not unfair petitions were subject to a limitation period was put before the Court of Appeal

The Court of Appeal was asked to decide two questions of principle:
1. Whether any limitation period applies to a petition under s.994
2. If so, what is the period?

Discussion:
The Court of Appeal considered the lack of a limitation period can be justified by a course of cumulative conduct that amounts to unfair prejudice. Often, a single act may not cross the threshold of unfair conduct. Whereas a series of actions or a course of conduct may cumulatively present unfair conduct of a company’s affairs. The Court of Appeal considered that “once conduct (whether individually or cumulatively) amounts to unfair prejudice, there is no particular reason why a petitioner should be in any more favourable position than any other litigant.”

In principle, the Court of Appeal found that a petition initiation proceedings in a court falls within the definition of s. 38(1) Limitation Act 1980. Action is defined as “any proceedings in a court of law.” Supporting authority was the matter of Re Karnos Property Co Ltd (1989) 5 BCC 14, where Mervyn Davies J considered this definition as applying to a winding-up petition.

The Court of Appeal found that there is no right to relief from unfair prejudice apart from s.994 CA 2006. Thus,, the breach is based on statutory duties owed by directors to a company rather than a specific petitioner. Therefore, in principle,e, the petition should be subject to the Limitation period provided for by s.8 of the Limitation Act 1980.

The Court of Appeal decided that the under s.8 Limitation Act 1980, the limitation period for unfair petitions will be 12 years; unless the claim is for monetary relief or compensation, the limitation period will be 6 years under s.9 Limitation Act 1980. However, where a Petitioner is not aware of the concealment of unfair practices, they are entitled to rely on s.32(1)(b) Limitation Act 1980. Time does not begin to run until the petition has, or could have, with reasonable diligence, discovered the concealment.

It was also found that a petition fell within the definition of a “statement of case” pursuant to CPR 17.4 and 2.3. As such, the rules relating to amending or adding new claims to a statement of case after the expiry of the limitation period would still apply. In short, any amendments to a petition cannot include a claim that is time-barred.
Interestingly, in Obiter, Snowden LJ noted that s.994 petitions can lead to “disproportionately lengthy and expensive trials.” While not looking to provide a firm judgment on this point, Snowden LJ suggested, “ Judges should not be discouraged […] from striking out or summarily dismissing allegations of historical misconduct if it can clearly be seen, at an interim stage, that even though the petition was presented within the applicable limitation period, no reasonable judge could consider that such matters would justify the exercise of discretion to grant the relief sought at trial.”

The implication of this decision is twofold.

Firstly, Petitions must be drafted with serious consideration, and the type of relief sought will now have different limitation periods. It will be necessary to determine which course of conduct is relevant to a petition. Although a fixed limitation period will apply, historical conduct is permissible if it forms part of the cumulative course of conduct together with later events and the later events, considered alongside earlier events, are sufficient to constitute unfair prejudice.

Secondly, in light of the obiter, it is open for the Court to summarily dismiss or strike out petitions made within the limitation period for unreasonable delay. Simply, if the prejudice is known, there should be no unreasonable delay in presenting a petition. This would add a further hurdle to petition beyond the imposition of a limitation period.